Experts torn on effect of sales tax hike

Thursday

Economists, retailers and other organizations are divided over the effect a 25 percent increase in the sales tax will have on consumers and local businesses.

Economists, retailers and other organizations are divided over the effect a 25 percent increase in the sales tax will have on consumers and local businesses.

On Tuesday, the Senate voted 29-10 to raise the sales tax from 5 percent to 6.25 percent. That vote would be enough to overturn a threatened veto by Gov. Deval Patrick. The House voted for the same sales tax hike last month, also by a veto-proof majority.

While proponents are projecting a $633 million increase in revenue over the next fiscal year due to the vote, others fear private sector jobs will suffer as consumers scale back or go out of state for their purchases.

The Massachusetts Retailers Association is against the tax increase, saying retailers in Massachusetts have to compete with New Hampshire businesses and the Internet, which are tax-free. It cited the success of online vendors such as Amazon.com, which has increased its revenue, while most state businesses have dealt with losses.

"Given the fragile state of the economy, the high cost of living and the high cost of running a business here in the commonwealth, many small business owners will not survive the impact of these proposed tax increases on consumers," the Massachusetts Retailers Association Web site reads.

The association also pointed to a report by the Beacon Hill Institute at Suffolk University, which concluded that a sales tax increase to just 6 percent would destroy 10,182 private sector jobs and cause the average person to lose $369 per year in spending power.

Other experts are not predicting such dire consequences. Dr. Nora Ganim Barnes, director of UMass Dartmouth's Center for Marketing Research, said consumers have already reduced purchases in the current economic climate, so the increase in the sales tax will do little to cause people to scale back even further.

"People will feel the effect most on big-ticket items, which they're not buying right now," she said, adding that by the time the economy rebounds, people will have psychologically adjusted to the higher rate.

Barnes said that with Rhode Island's sales tax even higher, at 7 percent, SouthCoast businesses are unlikely to see their customers leaving for better prices over the border. But even for businesses near New Hampshire, she does not forecast gloom and doom.

"I don't actually see a mass exodus to New Hampshire or the Internet," she said. "Both of those things have their drawbacks." Internet purchases require the consumer to wait for the product, and there could be shipping fees or problems with returns. Meanwhile, driving to New Hampshire takes time, uses gas and contributes to car wear and tear.

Local retailers are unsure what the hike will mean locally.

"I really have mixed feelings," said Ron Lapointe, owner of The Music Center in New Bedford.

"I know the state is strapped for cash," he said, but added, "I do have concerns like everyone else in retail. ... I'm sure it's going to have an effect on retail in general depending on the geographic location."

At Days' Sports Inc. in Fairhaven, owner Paul Merrill said much of his merchandise, such as clothing, is exempt from sales tax, so the hike might not make a big difference. Still, he feels for consumers.

"I kind of think that people need a little leeway right now to get back on track," he said.

Businesses closer to the Rhode Island border expressed concerned about the sales tax hike, as it creeps closer to the Rhode Island rate and diminishes the edge over Ocean State retailers. The Fall River Chamber of Commerce issued a statement last month speaking out against the rate increase and echoing Patrick's call for reforms before taxes. The chamber said that, since January, four chamber members filed for Chapter 7 bankruptcy protection and 16 member businesses have closed their doors forever.

Barbara Anderson, executive director of the Massachusetts watchdog group Citizens for Limited Taxation, said that in addition to the financial pressures businesses and consumers will face as a result of the tax increase, her concern is that the Legislature has stopped listening to its constituents because its members are not held accountable on election day.

"This is much bigger than just a tax issue," she said. "This is how much are people going to put up with?"

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